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Gunvor agrees to 3 million mt/year deal with Tellurian for Driftwood LNG supplies

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Gunvor agrees to 3 million mt/year deal with Tellurian for Driftwood LNG supplies

Highlights

10-year agreement indexed to Platts JKM, Dutch TTF

Commercial activity for developer has picked up

Commodity trader Gunvor has agreed to a medium-term deal to buy 3 million mt/year of supply from Tellurian's proposed Driftwood LNG export terminal in Louisiana, Tellurian said May 27.

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The sales and purchase agreement, announced in a statement, marks a significant advancement for Tellurian in its commercial efforts, after a two-year lull in firm activity.

Tellurian's only other firm commercial deal tied to Driftwood that has been announced to date is a 2019 agreement with France's Total that covers 1 million mt/year of partner volumes and 1.5 million mt/year of marketing volumes.

The deal with Gunvor covers a 10-year period, with the supply indexed to a combination of the Platts JKM and Dutch TTF, netted back for transportation charges. The LNG would be delivered free on board from Driftwood, Tellurian said. Tellurian estimates that based on current LNG prices, the Gunvor deal represents about $12 billion in revenue over a 10-year period.

Earlier this year, Tellurian launched an offering of 10 million mt/year of Driftwood marketing volumes for a 10-year term for the price of the monthly Platts JKM assessment or Dutch TTF index, minus the cost of shipping. By eliminating the US Henry Hub gas price from the equation, Tellurian hopes to alleviate one measure of volatility that has so far prevented it and many of its North American competitors from sanctioning construction of their terminals.

On May 12, Tellurian Executive Chairman Charif Souki told S&P Global Platts that the developer expected within a few weeks to complete commercial agreement sufficient to support the 16 million mt/year first phase of Driftwood.

At the time, Souki said Tellurian was in advanced talks with four or five LNG buyers for volumes that Tellurian is marketing on its own, not volumes that would be covered by equity partners the company has been soliciting.

Success in that time frame, even with the Gunvor deal, would be a feat considering the challenges Tellurian up until now has had building sufficient commercial support. Other US project developers have also faced challenges.

Exelon-backed Annova LNG in March canceled its proposed liquefaction project in Brownsville, Texas; Canada's Pembina paused development in April of its proposed Jordan Cove LNG project in Oregon; and Sempra Energy said earlier in May that it would likely delay a final investment decision on its proposed Port Arthur LNG project in Texas to 2022, from a previous target of 2021.

But on the positive side, global LNG loadings for existing US terminals remain robust, with a strong pricing environment driving all marginal supply into the market. Forward price spreads between end-user markets and the US Henry Hub are trending strong through early 2022.

Total can back out of its Driftwood commitments if Tellurian does not declare a final investment decision by the end of June. Souki, in a Platts interview in May, said the Total agreement is "not going forward in the present form" and would need to be amended. He said building the terminal is no longer dependent on the Total agreement.

In an interview with Platts in March, Tellurian CEO Octavio Simoes said the company planned to produce all the natural gas it will need to feed Driftwood and would not sanction the up to 27.6 million mt/year liquefaction project until it had secured sufficient upstream reserves for the first phase. Souki told Platts that expanding Tellurian's upstream gas reserves would be more of a focus after the commercial agreements are in place.

Though it currently has a small acreage position in the Haynesville, Tellurian is looking to grow. It resumed its drilling program by spudding a new well April 25.